On The Slowdown Song

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[The interim budget for 2009-10, the last of the budgets of the current UPA government, was expected to have several electoral claims.Predictably, the budget speech of the stand-in finance minister Pranab Mukherjee, did just that. But what was of interest from this interim budget was the indications on where the Indian economy is headed during the current global financial crisis as well as what impact the two stimulus packages, announced in December 2008 and January, had on the fisc. The numbers say it all. A comparison between the budget estimate for 2008-09 and the revised estimates for 2008-09 shows that is a Rs 40,762 crore shortfall in revenue receipts. Similarly corporate tax collections has shown a shortfall of Rs 4,300 crore. Even income tax collections are short by Rs 15,700 crore. The list goes on. This shortfall is both on account of the tax cuts and the slowdown in the economy. Given the sector-specific government spending boost in key areas &ndash; such as the Bharat Nirman programme, the NREGA, etc. &ndash; the total expenditure of the government on the other hand has gone up by Rs 150,069 crore as against the budget estimates for 2008-09. The hit on revenues coupled with hike in spending has already resulted in the government showing a 3.4 per cent increase in the revenue deficit while the fiscal deficit too is projected to go up by an additional 3.5 per cent -- over and above the budgeted amount of 2.5 per cent for year 2008-09. Speaking to the media at the post-budget press conference, Ashok Chawla, secretary, department of economic affairs in the finance ministry said that the actual fiscal deficit, which is shown to be at 6 per cent (revised estimates, 2008-09) would actually be 7.5 per cent if &quot;below the line&quot; subsidies for oil and fertilizer companies was taken into account. For the year 2008-09 (revised estimates), these subsidies have been placed at over Rs 95,000 crore. Apart from a general slowdown in growth (from 9 per cent to 7.1 per cent expected this fiscal), the fall in tax revenues is also on account of the large across-the-board excise duty cuts announced in the stimulus packages. In fact, the finance minister in his budget speech on Monday said that &quot;extraordinary economic circumstances merit extraordinary measures&quot; and added that &quot;now is the time for such measures&quot;. He said that the &quot;government decided to relax the FRBM targets, in order to provide much needed demand boost to counter the situation created by the global financial meltdown&quot;. He then went a step further and said that &quot;depending on the response of the domestic economy and the revival of the global economy, there may be a need to consider additional fiscal measures when the regular budget is presented by the new government after the elections&quot;. Being fully aware of the so called &quot;fiscal indiscipline&quot; deliberately introduced to tackle the economic crisis, Mukherjee charted out a road map by stating that &quot;the medium term objective must be to revert to the path of fiscal consolidation at the earliest&quot; for which the Thirteenth Finance Commission had been asked to lay down such a roadmap. Last year, when the budget was formulated, the assumption of GDP growth was 13 per cent (nominal). This year, the growth that has been taken into account for formulating the interim budget is around 11 per cent. The question now is, what growth figure will the general budget assume 4-5months down the line? Mukherjee in his budget speech has already said &quot;current indications of the global situation are not encouraging&quot; and added forecasts indicate that the World economy in 2009 may fare worse than in 2008&quot;.